Increased compensation for Charlottesville employees could mean tax rate increases in 2024

Councilors also learn more about Charlottesville assessments 

More pieces are coming into place for Charlottesville’s next budget which will be presented to the City Council on Tuesday, March 5. 

City Manager Sam Sanders said there is currently a gap between revenues and expenditures of between $3 million and $4 million in the draft document.

“There are what I would label and have labeled catastrophic measures that I have not taken off the table that would what I would be willing to consider in prioritizing,” Sanders said.

Sanders made his comments in the middle of a budget work session on February 1 when asked by City Councilor Michael Payne to estimate the current gap. Councilors also suggested what taxes they would be willing to raise if necessary. 

More on that in a moment.  Councilors got the financial report for the second quarter of FY24 and also got a briefing on how preparations are going including the recent reassessment of real property values. 

“For 2024, residential reassessments increased 5.6 percent and commercial assessments increased 3.1 percent,” said City Assessor Jeffrey Davis. “That totals a 4.6 percent overall increase.” 

Notices were mailed on January 30 and anyone who wishes to dispute their assessment have until February 29 to make an appeal. 

Davis said the average assessment for a residential property in Charlottesville increased to $486,300. 

Davis said his office uses a Computer Assisted Mass Appraisal (CAMA) system to conduct the assessment each year. 

“We use sales reports from approximately 55 residential neighborhoods and 21 commercial neighborhoods,” Davis said. “We look at those neighborhoods each year and look to see what sales have taken place within those neighborhoods. We compare those sales with the assessments and then make a determination where do the assessments lie? Are they close to what the sale price was? Or are they a distance away. And then we move groups of properties at a time rather than do individual appraisals.”

Charlottesville Mayor Juandiego Wade asked what role reported delays with the post office might play in people receiving the notices. Davis said it has not been an issue, but he encouraged people to look online. 

Davis said that in 2022 there were 130 official appeals. That increased to 345 appeals in 2023, 29 of which were later withdrawn. 

“Now, that’s people who have filed a formal administrative appeal rather than just calling on the phone or sending an email or anything like that,” Davis said. “One hundred and seventy-three were unchanged, 140 decreased, we made reductions in 140 of those, and we raised three of those.” 

The work session was the official kick-off of Council’s role in the budget development process, with the Planning Commission having concluded their work with a public hearing on the Capital Improvement Program on January 9. (read my story)

Council also got the first glimpse of staff’s forecast for FY2025 and are anticipating an increase of $9.9 million in additional real property tax revenues, a $1.2 million increase in the meals taxes, and a $60,000 increase in revenue from the tax on plastic bags. (view the presentation)

Other items of note:

• Charlottesville will collect an additional $2 million from Albemarle County through the revenue-sharing agreement for a projected total of $17,760,728. 
• Charlottesville anticipates over $400,000 less in revenue from Parks and Recreation 
• Payment In Lieu of Taxes is expected to increase by $541,637 to $7.3 million 
• The city is anticipating decreases in the interest rate so less revenue is anticipated in that category

“All in all, the total revenue, new money if you will that we will have to spend in the FY25 budget, is about $16.6 million dollars, so roughly a 7.26 percent change,” said Krisy Hammil, the city’s director of budget and performance management.”

Hammill cautioned that those numbers might change over the next month as the budget presentation nears.  But, that figure gave Council a sense of how much funding is available for new initiatives. Before Council can get to that, there are several drivers including a projected $10 million to $12 million for employee compensation related to the new classification as well as collective bargaining and the city paying for a higher share of health care costs. 

City Schools are requesting additional funds to make up reductions in state funding. There are also additional requests from nonprofit applications from what’s known as the Vibrant Community Fund.

“So those three things when you add them up, they certainly are exceeding what we have for new revenue,” Hammill said. 

City Manager Sam Sanders said Council would have a tough decision ahead of them. 

“With the significant expenditures that we have before us and a healthy increase in revenue of $16 million, under normal circumstances we would have been celebrating, but because we have made big decisions in regard to employee compensation specifically, it comes with a very expensive price tag attached to it,” Sanders said. 

Sanders said Council may have to get to the point where they make cuts elsewhere in the budget and he has not taken that off the table as he develops the budget. The budget as it currently exists only funds $6 million of the School Board’s $12 million request above whatever the formulas says.

Sanders alluded to the catastrophic measures.

“Decisions have already had to be made and I have released a message to my lead team today so that they get this message as well,” Sanders said. “That’s no new employees, no new requests outside of what we’ve been able to integrate into the [Capital Improvement Program].”

Sanders said the classification and compensation study found out that the city was underpaying its employees, one of the reasons for turnover and vacant positions that have been partially responsible for annual surpluses 

“This is about how do you run and organization, manage an organization from a healthy stance,” Richardson. “You have to pay the people to do the job. You’ve got to pay them what the market says it needs to be paid or they’ll go elsewhere to do it and if you want performance to get better, this is also a way to achieve that.”

For background, some stories I’ve written on this topic:

• Charlottesville to study collective bargaining options, August 19, 2023
• Council briefed on results of compensation study, April 4, 2023
• Council adopts new compensation and pay scale for city employees, August 27, 2023

There are currently three collective bargaining units and Sanders said a fourth is forming. 

Mayor Juandiego Wade summed up the decision facing the city.

“From what I’m hearing, we’ll have to find a way to reduce the current expenses or find new revenue sources and we have only one or two tools for that,” Wade said. 

Here’s how much money would be raised by increases in the tax rate:

• Each additional penny on the real property tax rate would bring in an additional $1.1 million
• A one percent increase in the meals tax rate would yield just over $3 million
• Every additional penny on the personal property tax rate would yield $30,238
• Every additional penny on the lodging tax would bring in just over $1 million 

Hammill said the budget has to be balanced in-house this week in order to meet the deadlines for advertising both the recommended budget and the eventual tax rates.

Charlottesville increased the real property tax rate in 2023 by one penny to $0.96 per $100 of assessed value. The rate had been $0.95 since 2008 after several years of decreases made at the time to contend with growing property values in the mid 2000’s. In 2003, the rate was $1.11, a figure it had been since at least 1995. (cvillepedia page with citations) 

Councilor Lloyd Snook said the reduction in the rate has led the city to the situation Council currently faces. 

“I thought that when we dropped our tax rate to $0.95 that we were underfunding our government, and that we were not paying for maintenance, that we were not paying our people well-paid, that we were making fundamental mistakes,” Snook said. 

Snook said he would like to first see some budget cuts, but he would support an increase in the real estate tax to $1.00 per $100 of assessed value. Councilor Brian Pinkston and Mayor Juandiego Wade both said they would as well. 

Councilor Michael Payne said he is open to the idea of increasing the real property tax rate as long as relief programs continue to be augmented. 

“But I would say we should seriously, before even looking at the real estate tax, look at the lodging tax because I think we have strong tourism fundamentals in terms of UVA, adjacent wineries, Monticello,” Payne said. “That tax is going to disproportionately go to people of means, not living here, who are coming in to visit.” 

Councilor Natalie Oschrin said she needed more information and scenarios. 

“I’m not gung ho about raising any of these taxes, especially the real estate tax,” Oschrin said. “So I am interested in diving deeper into the expenditure side of things as well.” 

Based on this conversation, Council did not have any interest in increasing the meals tax or the personal property tax at this time and in this year

There’s plenty of more of this story being wait to be told.

Before you go: The time to write and research of this article is covered by paid subscribers to Charlottesville Community Engagement. In fact, this particular installment comes from the February 6, 2024 edition of the newsletter and podcast. To ensure this research can be sustained, please consider becoming a paid subscriber or contributing monthly through Patreon.